This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. MM 98-16

MASS MEDIA ACTION

November 19, 1998

FCC SETS FEE LEVEL FOR SUBSCRIPTION SERVICES USED BY BROADCASTERS ON NEW DIGITAL TV CHANNELS

The FCC today adopted rules that require broadcasters to pay a fee of 5% of gross
revenues received from ancillary or supplementary uses of the digital television (DTV)
spectrum for which they charge subscription fees or other specified compensation. No fees are
required for commercial advertising revenues from free over-the-air broadcasting services.

Today's order implements a Congressional mandate in the Telecommunications Act of
1996 that the FCC establish a program to assess and collect fees from broadcast licensees for
"ancillary and supplementary" uses of the DTV spstrum. The fee level must accomplish three
major goals: (1) "recover for the public a portion of the value of the public spectrum," used
by broadcasters on a fee basis, (2) avoid unjust enrichment and (3) recover for the public an
amount that, to the extent feasible, equals but does not exceed the amount that would have been
recovered had such fee services been licensed in an auction.

The FCC said that basing the required fee on a percentage of gross revenues from
covered services will be the simplest fee-recovery system for broadcasters to comply with and
for the FCC to enforce, and will minimize accounting, paperwork and compliance burdens on
licensees. The Commission said that one advantage of the revenue-based approach, as opposed
to a flat fee, is that licensees will not have to commence paying a fee until they begin to collect
revenues from covered services, and therefore minimizes any detrimental effect the fee might
have on the development of new and innovative services.

The Commission said that setting the fee at 5% of gross revenues will meet the
statutory goals of recovering a fair value for the ancilllary or supplementary services and
preventing unjust enrichment. It said that at the same time, a 5% fee level is reasonable to
broadcasters, gives them flexibility in using their DTV spectrum, and will not dissuade them
from using their DTV capacity to provide new and innovative services that can greatly benefit
consumers.

The Commission said it will assess fees on all revenue, including subscription and
advertising revenue, on covered services for which viewers must pay subscription fees to
receive.

The fee program will go into effect immediately. The FCC said that beginning in
1999, it will require licensees to pay the fee on December 1 each year for covered revenues
received for the twelve-month period ending September 30. Broadcasters must also annually
file a December 1 report which will provide the FCC with data to fulfill its statutory obligation
to report to Congress on this program and to consider adjustments in the fee level.

The 1996 Act requires the FCC to adjust the fee "from time to time" and to report to
Congress on the fee program by 2001. The Commission said that once digital television
licensees have implemented ancillary or supplementary services, the Commission and the
licensees will have a better concept of what these services might include and of the profit-
making capacity of these services. Therefore, the Commission said that it intended to review
the fee assessment program by the time of that mandated report to Congress.